Consider a project to produce solar water heaters. It requires a $10 million investment and offers a

Consider a project to produce solar water heaters. It requires a $10 million investment and offers a level after-tax cash flow of $1.73 million per year for 10 years. The opportunity cost of capital is 11.75%, which reflects the projectAc€?cs business risk.

   a.

Suppose the project is financed with $7 million of debt and $3 million of equity. The interest rate is 7.75% and the marginal tax rate is 34%. The debt will be paid off in equal annual installments over the projectAc€?cs 10-year life. Calculate APV. (Do not round intermediate calculations. Roundup your answer to the nearest whole dollar.)

     Adjusted present value $

   b.

If the firm incurs issue costs of $600,000 to raise the $3 million of required equity. Calculate APV. (Do not round intermediate calculations. Roundup your answer to the nearest whole dollar.)

     Adjusted present value $

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